Counterparty Credit Risk : Evolution of the standardised approach to determine the EAD of counterparties

This new article of the GRA team has been made in association with the Stream CIB; it focuses on the revised standardised methodology (SA-CCR) introduced by the regulator to compute the Exposure of derivatives for Counterparty Credit Risk management.

 

The article emphases on the importance of the standardised methodology as it will become a mandatory requirement in the next future given the new finalised Basel III reforms. Indeed with the future introduction of the output floor requesting Banks to compare the Capital amounts obtained with their internal models relatively to the amounts obtained with a standard model; it involves that in the upcoming years all the Banks will need to have standard methodologies implemented in their Risk System. As such, the Article recalls the evolution of the standard approach in a Counterparty Credit Risk framework and summarizes the main components of the SA-CCR methodology presented in the regulatory document namely bcbs279.

 

Written by Benoit Genest, Partner and Head of GRA Dept. of Chappuis Halder & Co.

 
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